by now, if you’ve been paying attention, that the coronavirus pandemic is, if not a turning point in history, then the midwife to profound change or, at the very least, an opportunity for a bit of a rethink. Everything has changed—except, perhaps, minds. Those who expected China to blow up are now more convinced it will. Believers in globalisation’s retreat, or inflation’s comeback, have fewer doubts.
Yet if these vices seem more apparent, so does the virtue of diversification. The ideal diversifier is not just something other than what you own, but something that contrasts with it. The typical portfolio is rich in dollar assets—in Treasuries and the leading American shares. It needs a counterweight, an anti-dollar trade. A benchmark basket of emerging-market stocks is a good one.
Should inflation pick up faster in the developing world than in the rich one, the reckoning would change. Currencies would then need to fall further in nominal terms to keep the exchange rate steady in real terms, so that exports stay competitive. Emerging-market economies tend to be more inflation-prone than richer ones. Because of that, central banks have generally been vigilant.
The silver lining and hence the frenetic investment activity by cash flushed funds seeking a coronadividend
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